Rupert Murdoch's News Corporation, described by Labour MP Tom Watson as a "toxic institution", could find itself publishing his book on phone hacking as the publisher considers a bid for Penguin.

The reported £1bn offer from News Corp's publishing arm, HarperCollins could be put to the board of parent company Pearson as early as Wednesday, the Sunday Times said. Any approach could spark a bidding war, as Pearson is already in talks with Europe's biggest publisher, Bertelsmann, which owns Random House.

A deal with Random House would create a publishing house responsible for a quarter of English language books worldwide. A HarperCollins linkup would give the firm a market share of about 20%. Both are likely to face inquiries from the competition commission before a deal is finalised.

A number of writers warned that Penguin's reputation would be damaged by a Murdoch takeover. Martin Hickman, co-author of Dial M for Murdoch, published by Penguin, said: "Penguin have a great reputation. They are a publisher with integrity and a wider social mission, so are not the most nakedly aggressive publisher out there. But with HarperCollins, their virtues would be lost.

"The idea of News Corp taking over Penguin is nightmarish for our book. I don't think we'd see a paperback edition published by them and certainly not any updated editions. I don't have the same fears with Random House, which I feel have integrity."

Another Penguin author, David Lodge, best known for his campus trilogy, said he was fearful of a takeover by the Murdoch-owned company, although he pointed out that his publishing relationship with Penguin ends soon.

He said: "It would bother me if I was seriously connected with Penguin any longer. I don't view it with any enthusiasm. I think the whole thing is going to reduce chances for authors placing their work if it was to go ahead."

Other authors and agents, who declined to be named for fear of future publishing prospects, were also concerned to be associated with the Murdoch brand. One agent, who represents authors across all three publishing houses, said: "Authors have told me they are frightened by a Random House takeover, but terrified by a HarperCollins one.

"HarperCollins are far less author-friendly – they appear to be a monolithic and centralised organisation and, although Murdoch may not be pulling the strings, his mindset is certainly instilled in the company. Penguin is probably the only publisher that still has a gold-plated brand identity. Across the world they are known for paperback publishing and have an excellent reputation.

"Murdoch could come in and make assurances that he won't interfere, but he said that when he bought the Times newspaper and you only need to look at what happened with Chris Patten's book on China."

In 1998 HarperCollins dropped Lord Patten's East and West under Murdoch's orders over fears it would be critical of China, where News Corp was hoping to expand. The company was forced to apologise and agree an out-of-court settlement.

Another Penguin author said: "This is all to do with Amazon and the big publishers hoping to challenge the website's dominant position. But if Penguin ends up with HarperCollins that would be a terrifying prospect. It could well lead to Murdoch making an approach for the [Pearson-owned] FT."

It is thought discussions with Random House are more likely to succeed and could lead to Penguin's chairman and chief executive, John Makinson, being given a senior role within the new company.

The deal would provide Pearson with a clean break from book publishing as the company looks to focus its attentions on its education business, which makes up four-fifths of its turnover. Any deal with HarperCollins would boost News Corp's publishing division ahead of a split in the company between broadcast and print.